The Lockit Company manufactures door knobs for residential homes and apartments. Lockit is considering the use of simple (single-driver) and multiple regression analysis to forecast annual sales because previous forecasts have been inaccurate. The new sales forecast will be used to initiate the budgeting process and to identify more completely the underlying process that generates sales.

Larry Husky, the controller of Lockit, has considered many possible independent vari¬

ables and equations to predict sales and has narrowed his choices to four equations. Husky used annual observations from twenty prior years to estimate each of the four equations.

Following is a definition of the variables used in the four equations, and on the next page is a statistical summary of these equations:

Required:
1. Write Equations 2 and 4 in the form Y = a + bx.
2. If actual sales are $1,500,000 in 2000, what would be the forecasted sales for Lockit in 2001?

3. Explain why Larry Husky might prefer Equation 3 to Equation 2.
4. Explain the advantages and disadvantages of using Equation 4 to forecast sales.

Transcribed Image Text:

G S G G-1 N, 1 = = Forecasted sales in dollars for Lockit in period t. Actual sales in dollars for Lockit in period t-1. Forecasted United States gross domestic product in period t. Actual United States gross domestic product in period t-1. Lockit's net income in period -1.